What’s driving current mortgage rates?
Mortgage rates today dropped nicely and unexpectedly. The Commerce Department reported this morning that April New Home Sales dropped 1.5 percent to a seasonally adjusted annual rate of 662,000 units. Analysts had been expecting them to fall 2 percent, though, so this should have been bad for mortgage rates.
However, sales for the previous three months were revised down, meaning the housing market is not and has not been as healthy as experts believed. That is actually good for mortgage rates because it indicates less demand for home loans (lower demand tends to curb pricing) and less economic activity (which lowers rates because it allays fears of inflation).
Rates could change again this afternoon after we get notes from the latest Fed meeting, which include comments about the economy and are closely watched by investors and lenders.Rates Below Are Averages. Get Your Personalized Rates Here. (Dec 13th, 2018)
|Conventional 30 yr Fixed||4.833||4.845||-0.04%|
|Conventional 15 yr Fixed||4.372||4.391||-0.08%|
|Conventional 5 yr ARM||4.375||4.788||-0.02%|
|30 year fixed FHA||4.625||5.634||-0.04%|
|15 year fixed FHA||3.75||4.701||-0.06%|
|5 year ARM FHA||3.875||5.087||Unchanged|
|30 year fixed VA||4.708||4.905||-0.04%|
|15 year fixed VA||3.875||4.189||Unchanged|
|5 year ARM VA||4.125||4.377||Unchanged|
Financial data affecting today’s mortgage rates
Today’s data indicate lower mortgage rates. Almost anything bad for the economy is good for rates.
- Major stock indexes opened down (good for mortgage rates)
- Gold prices fell $2 an ounce to $1,289. (That is slightly bad for mortgage rates. In general, it’s better for rates when gold rises, and worse when gold falls. Gold tends to rise when investors worry about the economy. And worried investors tend to push rates lower)
- Oil prices dropped $1 to $71 a barrel (that’s good for rates because energy prices play a large role in creating inflation.)
- The yield on ten-year Treasuries fell a significant 5 basis points (5/100th of 1 percent) to 3.02 percent. That is very good for mortgage rates because mortgage rates tend to follow Treasuries.
- CNNMoney’s Fear & Greed Index dropped 7 points to 55 (out of a possible 100). That means we’re out of the “greedy” range and back into “neutral.” Moving into a greedier state is usually bad for rates. “Fearful” investors generally push bond prices up (and interest rates down) as they leave the stock market and move into bonds, while “greedy” investors do the opposite.
There will be few scheduled economic releases this week. However, All eyes remain on geopolitical news like the Iran arms deal, trade wars, and relations with North Korea. The Fed will also weigh in, releasing notes from its meeting on Wednesday. Friday is probably the most important day because consumer sentiment drives two-thirds of the US economy.
- Monday: nothing
- Tuesday: nothing
- Wednesday: New Home Sales for April (previous month was 694,000), Fed Minutes
- Thursday: Weekly Jobless Claims, Existing Home Sales for April (previous month 5.6 million)
- Friday: Durable Goods Orders for April, May’s Consumer Sentiment Index
Rate lock recommendation
Rates are trending higher despite some occasional dips. Overall, it’s better to take a defensive position when locking rather than floating and hoping — unless you are trying to refinance and have a target rate you need to hit to make it worthwhile. Today’s lower rates are a gift. I would tear the paper off and lock now.
In general, pricing for a 30-day lock is the standard most lenders will (should) quote you. The 15-day option should get you a discount, and locks over 30 days usually cost more. If you can get a better rate (say, a .125 percent lower rate) by waiting a couple of days to get a 15-day lock instead of a 30, it’s probably safe to consider.
In a rising rate environment, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer you lock, the higher your upfront costs. If you are weeks away from closing on your mortgage, that’s something to consider. On the flip side, if a higher rate would wipe out your mortgage approval, you’ll probably want to lock in even if it costs more.
If you’re still floating, stay in close contact with your lender, and keep an eye on markets.
- LOCK if closing in 7 days
- LOCK if closing in 15 days
- LOCK if closing in 30 days
- LOCK if closing in 45 days
- LOCK if closing in 60 days
Video: More about mortgage rates
What causes rates to rise and fall?
Mortgage interest rates depend on a great deal on the expectations of investors. Good economic news tends to be bad for interest rates because an active economy raises concerns about inflation. Inflation causes fixed-income investments like bonds to lose value, and that causes their yields (another way of saying interest rates) to increase.
For example, suppose that two years ago, you bought a $1,000 bond paying five percent interest ($50) each year. (This is called its “coupon rate.”) That’s a pretty good rate today, so lots of investors want to buy it from you. You sell your $1,000 bond for $1,200.
When rates fall
The buyer gets the same $50 a year in interest that you were getting. However, because he paid more for the bond, his interest rate is now five percent.
- Your interest rate: $50 annual interest / $1,000 = 5.0%
- Your buyer’s interest rate: $50 annual interest / $1,200 = 4.2%
The buyer gets an interest rate, or yield, of only 4.2 percent. And that’s why, when demand for bonds increases and bond prices go up, interest rates go down.
When rates rise
However, when the economy heats up, the potential for inflation makes bonds less appealing. With fewer people wanting to buy bonds, their prices decrease, and then interest rates go up.
Imagine that you have your $1,000 bond, but you can’t sell it for $1,000 because unemployment has dropped and stock prices are soaring. You end up getting $700. The buyer gets the same $50 a year in interest, but the yield looks like this:
- $50 annual interest / $700 = 7.1%
The buyer’s interest rate is now slightly more than seven percent. Interest rates and yields are not mysterious. You calculate them with simple math.Verify your new rate (Dec 13th, 2018)